The Rise of the Local Exchange
A thriving local economy includes an entrepreneurial community and a flow of capital to support enterprise growth from startup to expansion. We know that investment into local businesses stimulates local economies and yet opportunities to engage in this type of investing remain fairly limited. As interest in local investing grows, a number of initiatives are working to create a local exchange system that could allow easier access to investment in local businesses. An effective local exchange would address the prevailing concerns around the proliferation of local investing: how to evaluate companies that list their offerings, how to open up access to a wider range of investors beyond high-net worth investors while also offering a means of protection from fraud, and addressing the need for some liquidity in these type of investments.
Two of the most developed local exchange initiatives are brewing in the communities I consider home: Oregon and Hawaii. Neither are intending to be full-blown stock exchanges, but rather aim to be platforms supported by a broker/dealer system committed to expanding access to local investing.
Springboard Innovation, a Portland based nonprofit that has been supporting social enterprise since 2006, is working to launch ChangeXchange Northwest as a channel for community based investment in Washington and Oregon. ChangeXchange is a comprehensive initiative that combines the use of an online transaction platform with city by city educational programs for entrepreneurs, community leaders, investors, and support professionals in order to build a complete ecosystem to encourage the success of the local investment movement.
Springboard is bringing together a core team composed of some of the leading experts in community capital building issues including Jenny Kassan and John Katovich of Cutting Edge Capital, Amy Cortese, journalist and author of Locavesting, and the company behind Portland’s innovative buy local rewards program, Supportland. The organization intends to work with Mission Markets, a startup company that is developing the financial technology and data services to support a marketplace that works within existing regulatory oversight and is dedicated to the growth of social and environmental capital markets. ChangeXchange will offer a user-friendly platform for listing, buying, and selling a full spectrum of private and public offerings by Oregon and Washington enterprises. Additionally, Mission Markets will serve as a secondary trading market where community investors can sell their existing local holdings to others looking to buy them. This offers the possibility of greater access to liquidity, a key hurdle to owning most types of local investments.
Oregon and Washington businesses have the benefit of a shared process for approving Direct Public Offerings (DPO), a relatively inexpensive and little-used legal tool that allows small businesses to raise community-based financing. This makes it much easier for a Northwest business to raise capital within two states in one fell swoop. Jenny Kassan has been a champion of the DPO and its valuable role in creating public access to local investment opportunities. In Portland, Kassan has worked with Springboard to present hands-on workshops for local enterprises ready to raise capital with the tool. There could soon be a wave of Direct Public Offerings coming out of Oregon and Washington ripe for listing on a local exchange where investors of all types can invest.
Meanwhile, in Hawaii, one man, David Fisher, has been leading the charge to create a Hawaii community exchange. Hawaii had its own stock exchange until 1976, and he has been working with Hawaii state regulators to determine the best way to create a new exchange. His approach is to focus first on creating an exchange that includes private offerings of local businesses available to accredited investors only. The use of DPOs could enable unaccredited investors access to the exchange as well, but that concept has not yet taken root in Hawaii. Fisher estimates that Hawaii has the capacity for 100 million dollars in annual investment into local companies via a local exchange. He identifies several vital sectors for investment in Hawaii: food systems, renewable energy, communication and broadband, health and wellness, and water systems.
Amy Cortese, through her on-going speaking tours nationwide about Locavesting, reports that virtually every community she engages with is looking for workable models to stimulate and free-up local investment. With any luck, the launch of the comprehensive ChangeXchange Northwest approach could serve as a replicable model for other communities working on the same puzzle.
This article appeared in the Autumn 2012 edition of the Natural Investments Newsletter
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